Q&A: What it means that stocks are in a 'correction'

Updated 8:29 am, Friday, February 9, 2018

NEW YORK (AP) — The stock market's steep decline the past week has pushed the Dow Jones industrial average and the Standard & Poor's 500 index into what is known as "correction" territory.

Here are some common questions asked about corrections and what they mean to average investors:

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WHAT IS A STOCK MARKET CORRECTION?

A "correction" is a Wall Street term for when an index like the Dow industrials or the Nasdaq — or an individual stock — falls 10 percent from its most-recent high. The Dow fell 1,032.89 points Thursday to 23,860.46, which is 10.4 percent below its record close of 26,616.71 set on January 26. A correction is not the same as a bear market, which is defined as when a stock index or individual stock falls 20 percent from its most-recent peak.

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IS THE ENTIRE STOCK MARKET IN A CORRECTION?

Two of the U.S. stock market's three major indexes are in correction territory now. The S&P 500, the index that investors pay the most attention to, is in a correction, down 10.2 percent from its recent high. The Nasdaq composite is close, but not all the way there, down 9.7 percent from its record.

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WHEN WAS THE LAST TIME WE HAD A CORRECTION?

The last correction for the S&P 500 ended in February 2016, when worries about a sharp slowdown in China's economic growth rattled markets around the world.

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ARE CORRECTIONS A NORMAL THING FOR THE MARKET?

Even the most bullish of market strategists will say a correction is ultimately healthy for a market because it removes some of the froth and speculation.